LONDON-listed coal bed methane company Green Dragon Gas has settled a disagreement with China United Coalbed Methane Corporation (CUCBM) regarding five of its production sharing contracts (PSCs) in China.

A 60 per cent operating stake in the blocks was awarded to Green Dragon by CUCBM, a subsidiary of China National Offshore Oil Corporation (CNOOC), between 1999 and 2003.

But Platts reported that CUCBM had announced in March 2011 that it would no longer work with Green Dragon at the blocks, even though Green Dragon claimed it had completed all its work commitments and contractual obligations.

This came to an end after Green Dragon’s production sharing contracts covering the blocks were reinstated by the Chinese central government in July 2013.

In an announcement, Green Dragon chairman Randeep S. Grewal said the conclusion had been reached following nine months of continuous negotiations, opening the door to positive relations between companies.

“This agreement substantially de-risks the company’s assets, paving the way for us to rapidly build on existing production and sales and to fully realise the market potential for our gas in China,” he said.

“We now have a well-capitalised, supportive partner committed to developing our vast acreage and producing the substantial multi-trillion cubic foot gas resource with us over the next 20 years.

“The company has always been very consistent and clear of its bi-lateral treaty protected PSCs right, title and interest and are pleased to conclude this matter amicably in finality.”

The deal secures Green Dragon’s interest and revenue share in the 1,600 wells drilled by CUCBM in line with the PSCs, it said, as well as ensuring the sharing of information as well as seeing the exploration terms of those contracts extended by another two years.

Of those wells, about 1,300 had been drilled by CUCBM in the Shizhuang South Block, with Green Dragon saying those wells would continue to be operated by the Chinese company, alongside the wells drilled by CUCBM in Coal Seam 3 of the permit.

Green Dragon will however remain operator of the block, with its equity participation rising from 60% to 70% after paying CUCBM US$13 million, as provided by the PSC.

CUCBM has also committed to spending a further US$100 million on exploration and production in the Shizhuang North block in Shanxi province in exchange for a further 10% interest, resulting in each company holding a 50% participating interest.

CUCBM has already invested an estimated US$100 million to drill 250 wells in the block, Green Dragon said.

Mr Grewal said Green Dragon had a direct equity interest in over 1,800 drilled wells on the permits, with equity interests of between 47% and 70%.

“We expect to participate in cash f lows from 2013 onwards from existing legacy wells and continue a robust development plan with our cooperative partner CNOOC and CUCBM,” he said.

Following an audit of its reserves, Green Dragon would focus on its 150 LiFaBriC well drilling program at Shizhuang South, it said, adding in a statement that it expected CUCBM to spend an additional US$250 million on the block.